IRA

[Michael Melchior]

Can anyone explain how purchasing real estate with your ira(or roth ira) works?

[Brian Eastman]

@Michael Melchior

Firstly, you have to establish a self-directed IRA, Checkbook IRA LLC, or Solo 401k. These are retirement plan configurations that are not limited to investments in Wall St and can be more diversely invested into assets such as real estate.

There is much good information here on BP about these various plan formats and providers.

Investing in real estate with such a plan is pretty basic:

• The plan purchases the property.
• All expenses are paid with plan funds.
• All income from the property goes back to the plan.

It is really no different than investing in the stock market, other than the fact that the asset class is different.  Such plans are a way to diversify your retirement savings into real assets that produce consistent return.

The key thing to keep in mind is that it is not you investing in real estate and getting to use IRA money to do so. Rather, your IRA is investing in real estate, and you can administer that. You cannot personally benefit by using the property, compensating yourself for managing the IRA investments, etc. This prohibition extends to lineal family as well. The reverse is also true in that you cannot add value to the IRA by providing goods or services to the IRA. So no sweat equity is allowed.

Think of yourself as a fund manager for your IRA. It is all about you having control and more choices.